Foreclosure

Saw this in the NY Times the other day. It is fascinating. I found myself cringing as I read it. It is like a disaster movie; you know what is going to happen, but you can't do anything about it. it is a really interesting read.

http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?bl&ex=1242619200&en=f6b83c745499e551&ei=5087%0A

The Perfect Time to Buy a Home

Finding the Perfect Time to Buy a Home

I saw this on Zillow (I think) and was going to edit it down to be more applicable to our area but it is so good I did not want to chop up her work.

In the kitchen, it's common wisdom that you don't try to catch a falling knife. But in real estate markets that have recently seen double-digit declines, many buyers are anxious to catch the equivalent of a falling house.

They're betting they can buy property at or near its cyclical bottom by scoping out distressed but fundamentally desirable neighborhoods, floating lowball offers and focusing on bank-owned homes.

It's easy to understand why, given the property values in some of the nation's hardest-hit real estate markets. Home prices in the five worst-performing major metropolitan areas -- Las Vegas, Miami, Phoenix, San Francisco and San Diego -- are down more than 40 percent from their peaks, according to the S&P/Case-Shiller Home Prices Indices. With interest rates for government-backed mortgages at record lows, monthly payments for owner-occupants are at their most affordable levels in years.

Nonetheless, economists and veteran real estate investors say market timing is a risky proposition.

"The odds of you timing the bottom perfectly are pretty low," says Rick Sharga, vice president of marketing at RealtyTrac, a foreclosure data provider. "If you're that good, you should be playing the stock market every day."

Although the current buyer's market may look attractive, rising unemployment rates and persistently high foreclosure rates add pressure on the battered housing sector. Housing Predictor, a forecasting Web site, predicts that 25 housing markets, from Las Vegas to Seattle, will see declines between 14 percent and 27 percent this year.

Sharga sees little reason for prospective owner-occupants in most markets to back away from buying an affordable property. Prices could drop further, he says, but the worst has probably passed. Additionally, historically low mortgage rates and tax incentives for new buyers probably won't last much longer.

Still, real estate is the ultimate local commodity, and some markets will be closer to bottom than others, so prospective buyers looking to protect themselves against further price declines need to consider local economic conditions. Before finalizing a purchase, real estate experts advise that price-sensitive buyers check these five critical factors.

Look for positive indicators: Rising prices are the most obvious indicator of a market recovery, but they’re also evidence that the cycle has already passed its low point. In still-declining markets, however, you can still find other positive indicators. David Kendall, a Realtor in Oakland, Calif., says he's encouraged to see a rise in sales volumes in some hard-hit ZIP codes, indicating that buyers are comfortable with current prices. Other potential turnaround signs include a drop in the number of days that homes sit on the market and an uptick in competitive bidding for compellingly priced properties.

Be aware of "shadow inventory": Banks often don't want to put their entire real estate inventory on the market at once. Doing so can depress prices, particularly in neighborhoods that have not yet seen a high number of foreclosure sales. Because of several factors -- including the recently expired moratorium on home repossessions and anticipation around new federal mortgage assistance programs -- banks have been allowing such "shadow inventory" to build up, says Chris Matty, marketing director at ForeclosurePoint, which publishes foreclosure data. "There's a huge pool of inventory and distressed homes that have not made it to the market yet," he says. "But eventually that has to come."

It could be coming soon. More than 800,000 properties received foreclosure filings in the first quarter of 2009, an increase of 9 percent from the previous quarter and 25 percent from the same period a year ago, according to RealtyTrac.

Assess affordability: Falling real estate prices and interest rates have made owning a home now much more affordable compared with a few years ago. Affordability reached a three-year high in February, when the median-priced existing single-family house sold for $164,600, according to the National Association of Realtors.

However, affordability isn't spread equally across geographies. Homes in Indianapolis are within reach for most families living there, but dwellings in New York City are not. And expensive regions with high job losses -- such as California, where the unemployment rate exceeds 11 percent -- face heightened risk regarding affordability.

Kendall advises buyers -- even in markets with high affordability levels -- to pay attention also to the price ranges at which purchases are occurring. If sales are closing only at the lower end of the market, then pricier homes in the most desirable neighborhoods could still fall further.

Consider your plans for the property: In the current property market, owner-occupants can enjoy significant advantages over investors. Recently, creditworthy owner-occupants have locked in 30-year mortgages at fixed interest rates around 5 percent -- close to a generational low. Those who have not owned a principal residence for the past three years may also receive an $8,000 tax credit on a home purchase.

Such incentives are particularly attractive to buyers planning to stay in their home for many years. "If you're looking for a long-term hold, you're talking about locking in the lowest rates anyone's ever seen," says Matty. Buyers looking for a second home or rental property, though, need to focus more on price and potential return-on-investment because those low rates aren't available to them. Additionally, they're often competing with owner-occupants who can secure much lower monthly payments.

Markdowns don't matter, fundamentals do: In some of the nation's most battered real estate markets, such as California's Central Valley or South Florida, it's common to see homes selling for well below half their peak value. Those offerings may seem compelling, but often they're not. The issue, says Sharga, is that many pricey homes were built in regions that did not have enough residents who could afford them. The fact that values have dropped may be less an indication of abundant bargains than of widespread overpricing a few years back.

Just as prices overshot on the upside a few years ago, they can overcorrect on the downside. Mark Boud, owner of consulting firm Real Estate Economics, predicts just such a phenomenon. Although he believes housing is undervalued currently by an average of 10 percent nationwide, he still expects prices to fall another 4 percent over the next 12 months due to job losses. That said, Boud still contends conditions are favorable for homebuyers who plan to hold for a long time, saying, "We've overcorrected on a national basis, and that eventually translates into appreciation."

The above by Joanna Glasner- and it is really good.

First Time Buyer Tax Credit

With the move to allow first time buyers to monetize the $8,000.00 first time buyer tax rebate for closing costs, FHA loans are sure to capture even more of the mortgage marketplace.

While the details of the plan are still being hammered out, buyers, sellers and Realtors seem energized by the news. First time buyers made up 53% of of nationwide sales with a majority of those buyers looking for foreclosed or otherwise distressed properties.

The plan, as currently being discussed, will allow approved third party providers to extend short term bridge loans that will be repaid once the buyer receives their tax credit.

Who is eligible?

• The tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit
• Those exceeding the incomes above can still get a partial credit.

Here are examples of how a partial credit is calculated:

Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

According to the Wall Street Journal, Fannie Mae and Freddie Mac have about 60% of their inventory of foreclosed homes offered for sale. Typically they only lost 35-50% of their foreclosed inventory at any given time.

It is important for any buyer or seller to be aware of the "shadow inventory" of distressed homes not yet on the market. With a larger than usual percentage of distressed homes already on the market it would indicate that further price drops will shortly abate as inventory continues to drop.

What does this mean to you?

Buyers:

Rates are great and FHA rates are currently below conventional mortgage rates. With PMI getting tougher to get and and becoming more expensive, FHA is a great option even without the tax credit. Now that you can monetize that credit, FHA will likely take an even larger percentage of the marketplace.

Sellers:

FHA appraisals are a little more strict than conventional appraisals. To get your home ready to sell, consider making those little repairs you have been putting off. Consider offering a credit toward closing costs. FHA allows up to a 6% assist from he seller to be used toward closing costs.

Realtors: Make sure you know the FHA loan limits in your area; they vary by county. In Hunterdon County, NJ the limit is $729,000. Next door in Warren, NJ the limit is $402,500.00 while in Bucks County, PA the limit is $420,000 A link the Hud's website is below.

https://entp.hud.gov/idapp/html/hicostlook.cfm

Why Headlines Stink

This headline is misleading: U.S. Foreclosure Filings Hit Record for Second Straight Month Bloomberg 5/13/2009

Here is Why:

Yes, from last April to this April foreclosures are way up, 32% according to RealtyTrac Inc. However, the number of foreclosed homes has been dropping from month to month. According to Realty Trac's own numbers the pace of foreclosures in slowing.

There have been signs that the housing market in most parts of the country is stabilizing (see earlier posts). Yesterday it was announced that the number of homes listed for sale by builders is at a 2 year low and inventory across the board is lower. Yes it will take time to clear the inventory but the inventory is shrinking which is a signal that real estate may be bottoming out or may have already done so in many areas.

Declines Slowing: - From the same Bloomberg article:

U.S. Housing and Urban Development Secretary Shaun Donovan and former Federal Reserve Chairman Alan Greenspan said yesterday there are signs the real estate market is recovering.

“Since January we’ve seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate,” Donovan said at an NAR conference in Washington.

March prices fell less than in February and 17 states showed sales increases, yesterday’s NAR report showed, as buyers took advantage of mortgage rates below 5 percent. The Federal Reserve is purchasing mortgage-backed securities to spur lower rates.

There are still signs of trouble ahead.

While price declines are slowing, it’s likely foreclosures will increase in the coming months, according to Realty Trac.

“Lenders and servicers are beginning foreclosure proceedings on delinquent loans that had been delayed by legislative and industry moratoria,” Saccacio said.

Have we reached the bottom? Is now the time to buy? I found some great data and a great article that I will post later today.

New Week, New Changes/Link to a great Bloomberg Story

Good afternoon,

Going to be really brief here.

Rates are looking good despite the bond market getting beat up most of last week. Mortgage Backed Securities are still holding their own. Of course that can change.

The rules continue to change:

As of May 15, 2009 there will be only one company through which to get Private Mortgage Insurance (PMI) with a debt to income ratio greater than 41% and that company will likely change its guidelines to match the rest of the industry.

What does that mean to you?

FHA loans will continue to gather a larger share of the mortgage purchase and refinance markets. Over the past 1.5 years FHA has gone from 4% of the marketplace to over 45%.

Cool Link regarding the recovery and the typical recovery patterns with great info regarding real estate.
http://bloomberg.com/apps/news?pid=20601087&sid=aVK2m3ibUH6o&refer=home

"Confidence among homebuilders rose in April to its highest level since October as record-low mortgage rates below 5 percent started to stir demand. Prices for home resales in March posted their biggest monthly gain since June 2005, with some regions seeing multiple bids on properties"

Tug o War

Equities moved higher yet bonds holding steady which is good for mortgage rates. Bonds are looking at the total number of unemployed persons keeping the economy from rallying.

This is cool. If equities improve and rates stay low, people will have more money to spend and mortgage credit will remain inexpensive. That would be the perfect scenario.

Now the work gets serious

Briefly while the news rolls in:

The US Govt Labor Department's April Employment report echoed that of yesterday's ADP report indicating that the pace of job losses is slowing. With that news the equity markets opened higher and the bond markets continue to get beat up.

The pace of layoffs slowed in April when U.S. employers cut 539,000 jobs, the fewest in six months. But the unemployment rate climbed to 8.9 percent, the highest since late 1983, as many businesses remain wary of hiring given all the economic uncertainties.

What this means to you:

Increasing bond yields will put pressure on the govt to buy US Treasuries and Mortgage Backed Securities. If there are no buyers for the above bonds, interest rates will be forced higher. At this time the govt wants to try and keep rates low so we can all get out there and spend. Without spending and borrowing the rate of economic improvement will slow.

With unemployment expected to reach 9.5 or 10% the bond markets could rally because, while the rate of unemployment may be slowing those looking for work are unlikely to find it anytime soon. 9-10% of the population out of work will slow the rate of recovery and possibly cause the recovery to regress.

It is going to be an interesting day.